Legislative frameworkThere is no law that regulates ICOs and token issuance. Virtual assets do not fall under the regulatory scope of monetary policy as they do not fulfill the role of money in the Netherlands. Anti-Money Laundering and Combating Terrorist Financing Act (hereinafter:- “AML Act” defines a virtual currency as ‘a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically’.
As of May 21, 2020, companies providing cryptocurrency exchange service and/or custodial wallet providers have become subjects to regulatory oversight of the National Bank of Netherlands (De Nederlandsche Bank- hereinafter: - “DNB”) in respect of supervision of countering money laundering and combating terrorist financing. According to their website, they aim to prevent bitcoins and other cryptos from being used for illegal purposes such as money laundering or funding of criminal or terrorist activities. This supervision over virtual asset service providers (hereinafter:- “VASPs”) is a result of the government's new approach to prevent money laundering and combating terrorist financing, (hereinafter:- “AML/CFT”) as well as implementation of the fifth European Directive on Anti-money laundering and counter-terrorist financing into domestic legislation.
Companies that offer services in or from the Netherlands for the exchange of cryptocurrencies and fiat currencies and/or custodial wallet providers are required to register with DNB. Foreign companies engaged in crypto service brokerages who want to conduct business in the Netherlands are also subject to registration.
Registration procedureTo apply for registration, applicant must file the following information with DNB:
- general company information, including articles of association (in Dutch) and extract from KVK (commercial register);
- company plan, outlining the strategy, and overview of the activities and a SWOT analysis;
- сomposition of the board, including organisational and control structure;
- delineation of the business operations and management, including rules and regulations, audit, notification procedure, secondment, training, and education
- file per board member, demonstrating their fitness and propriety.
- applying for registration via the Digital Supervision Portal (DLT) by completing application form and uploading corporate information files. eHerkenning (digital identity authentication service for businesses) is also needed to apply through the DLT;
- requesting a fit and propriety assessment through DLT by separately filing the information about board members, using the Initial assessment form for crypto service providers.
To obtain a registration, VASPs must be able to demonstrate that they comply with the Anti money laundering and counterfeiting Terrorist Financing Prevention Act and the Sanctions Act 1977. These acts demand from VASPs to take necessary initiatives to assure that they properly check identities of individuals or legal entities that they are doing business with and keep records in conformity with the acts. So called integrity check, DNB supervises only these two laws for registered providers of crypto services. Registered companies are not subject to the prudential supervision by DNB, thus financial business risks are not monitored.
For the time being, there is no registration requirement for entities that only exchange between virtual currencies, but the DNB predicts that this may change in the future.
Crypto service providers are not supervised by the The Netherlands Authority for the Financial Markets (hereinafter:- “AFM”). According to AFM, cryptocurrencies are not financial products, so that (being involved as an intermediary in) the purchase or sale of cryptos, or the provision of services related to the custody or management of assets in cryptos is not regulated under the Financial Supervision Act. This means that there is no specific consumer protection using crypto services, except for general consumer protection laws.
Final remarksIt’s worth to note that contemporary supervision by DNB does not offer real protection to key stakeholders of the cryptomarket, despite the growing interest the investments by the consumers are vulnerable to losses. The universal EU regulation is still expected to be introduced, which is believed to establish a more protective regime to investors and consumers. The government is well aware of the prospects of digital assets in the Financial market and must therefore embrace the digital transformation, while also ensuring the mitigation of potential risks. We will keep a close eye on the legal developments of whatever happens in the crypto arena.
The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.